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The Not-So-Powerful Non-Disclosure Agreement (NDA)

May 17, 2018 Marwa Elzankaly

There once was a time when Non-Disclosure Agreements (aka “NDAs”) were primarily used by companies to keep their employees, contractors, or vendors, from divulging their intellectual property or sensitive business information, or when they had to disclose such information to a prospective buyer or investor in their business.  The use of the NDA, however, has become much more widespread.  It is now one of the most common methods lawyers use to protect their client’s confidential information, be it business or private personal information that they simply do not want others to know.

Although a signed NDA will certainly make someone think twice before disclosing private information, the limitations of the NDA have become far too apparent to be ignored. 

For one, in today’s world of internet, social media, and anonymous leaks to the press, NDAs can be difficult to enforce.  More importantly, the NDA does not keep someone from disclosing private information.  It simply creates consequences if a person does.  Once confidential information is disclosed, it is hard to undo the damage that has been done.  Oftentimes, no amount of monetary recovery can really compensate for having had private information spread to the public. 

Even damages may be difficult to recover under an NDA because the monetary value of the injury caused by disclosure is not readily ascertainable.  NDAs often have a “liquidated damages” clause, setting out the monetary consequences of disclosure.  However, such clauses are not enforceable unless you can show the amounts stated are based on actual anticipated damages, not just a penalty intended to punish the wrongdoer.

Another obstacle to enforcing an NDA is there are numerous loopholes upon which an NDA may be challenged, such as where the definition of the “confidential information” can be shown to be “vague” or “overbroad.”  NDAs may also be unenforceable if one can show the “confidential information” is not really “confidential” and has been disclosed to others.  Moreover, although certain protections may be put in place, NDAs do not work where one is compelled to disclose confidential information by subpoena or court order.  They also do not prevent one from disclosing information to government authorities. 

Also problematic with the NDA is it may be seen as a method used by the rich and powerful to force the little guy into silence.  Thus, attempting to enforce an NDA may create even more bad publicity and further tarnish one’s name and reputation.

That is not to say that NDAs should not be used.  On the contrary, a well drafted NDA can be effective in protecting confidential information.  Confidentiality agreements may also be beneficial to both sides when used for things like facilitating the resolution of a private conflict.  However, knowing the limitations of the NDA, it is important to consider other methods of protecting one’s business or personal information. 

For example, let people earn the right to have access to your confidential information.  It is important to vet people carefully before letting them into one’s inner circle.  Do not underestimate the importance of doing background checks, getting references, or asking about someone’s reputation for trustworthiness.  Tread carefully with people you do not know or with whom you have no experience.

Even after careful vetting, limit the amount of information shared on a need to know basis only.  Do not let a signed NDA give you a false sense of security that you may now share all without fear of consequence.  

Keep in mind that leakers may leak for a reason and often it may be pay back for poor treatment.  Be careful how you treat people.  Loyalty is not generated by signed documents, but by kind words and positive treatment.

Keep in mind also that the best defense is a good offense.  Especially for those in the public eye, do not underestimate the importance of working to create a positive public image.  Get to know people in the press and invite them to get to know you and what you do.  If life has given you much fortune, it does not hurt to share that fortune with the less fortunate.  Along those lines, consider having a response plan in place should confidential information find its way out into the public forum.  If you wait for a crisis, your response may be tainted by fear or panic.

The key take-away here is do not rely on the NDA alone to protect your confidential information.  Take other measures to ensure that only the best people have access to that limited information and only when they need to know.  Ultimately, a signed document is only as good as the signer’s willingness to honor it.